Participants in the poll said the currency market is bracing for wild swings in the next few weeks unless the Ukraine war is brought to a diplomatic conclusion.
India’s likely weaker external balances due to high commodity prices could add to its woes.
“The way the situation has emerged over the last one month, it will not easily cool off,” said Amit Pabari, managing director, CR Forex.
“The central bank could intervene, but deteriorating fundamentals will not allow traders to go long on the rupee against USD. FPIs are selling riskier EM assets.”
Poll respondents believe the rupee could slide up to 77.93 this calendar year. Two of them predicted the rupee to fall in the range of 80-82 per dollar this year. “We may see the rupee depreciate to 80 a US dollar in CY22,” said Saurabh Goenka, CEO, Zenith FinCorp. “RBI is likely to support the government fiscal borrowing programme by being more dovish as compared to the Fed. A falling rupee creates rupee liquidity in the system, luring overseas investors into local debt.”
However, seasoned traders expect the volatility to be over relatively soon.
“Even if the rupee drops in the shorter term due to geopolitical risks, rising crude and fund outflows, it is going to revert to the average five-year mean, which is at about 2.5%,” said Abhishek Goenka, founder, IFA Global.
A prolonged Ukraine turmoil could have a negative impact on the financial system. A flurry of economic sanctions on Russia will likely have ripple effects on oil and gas prices across the world. The rupee lost 1.05% to the dollar, closing at 76.97 Monday. It hit a low of 77.11.
Global crude oil prices hit $139 a barrel, threatening to raise India’s import bills as overseas shipments make up three-fourths of its motor-fuel consumption.
A weakening rupee adds to inflationary expectations.
“The recent spike in commodities has raised macro and micro concerns,” Jeffries Equity Research said in a report. “If the government cuts fuel taxes, it will impact the fisc. Rising trade deficit will create pressure on INR, although the RBI has enough firepower to reduce volatility.”
Auto fuel prices will require a 12-15% reset, which will likely have 60-80bps impact on CPI.
The reserve Bank of India has accumulated a total of forex reserves of $631 billion. It has been selling dollars to cut wild swings in the rupee’s value.
